Federal Reserve Chairman Jerome Powell is concerned about rising US debt. The annual debt in 2018 topped $1 trillion, while the overall deficit was $21.9 trillion as of January 8, according to the US Treasury, $16 trillion of which is owed by the public.
“I’m very worried about it,” Powell told those at The Economic Club of Washington, DC, on Thursday. “From the Fed’s standpoint, we’re really looking at a business cycle length: that’s our frame of reference.”
“The long-run fiscal, nonsustainability of the U.S. federal government isn’t really something that plays into the medium term that is relevant for our policy decisions,” Powell continued. “It’s a long-run issue that we definitely need to face, and ultimately, will have no choice but to face.”
While the US has sustained annual debts higher than 2018’s, the debts were high in 2009 and 2010 when the economy was recovering from the Great Recession. Currently, even though the economy is strong, the annual national debt is growing.
Through the reduction in contributions, the government debt increases and has a higher interest rate tacked on, creating a worsening cycle of increasing debt.
The result could be a “debt bomb” for the U.S. economy. In April of last year, Satyajit Das, a banker and author, stated, “A decade of unprecedently low global rates and abundant liquidity appears to have encouraged a spree of public and private debt accumulation. Higher interest rates will exacerbate the risk of financial distress for highly indebted corporate and sovereign borrowers.”
Wall Street’s Jeffrey Gundlach has stated that he believes the Fed could be on a “suicide mission” by raising interest rates at the same time the debt in the country is increasing.
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